Mexico coffee farmers hoard on hope of higher prices

Reuters Staff

4 Min Read

* Mexico coffee exports down around a quarter vs last year

* Rising internal consumption also shrinking exports

By Mica Rosenberg

MEXICO CITY, April 11 (Reuters) - Mexican coffee producers may be hoarding their beans to see whether record prices push even higher, adding to a supply squeeze that helped propel the coffee market to a 34-year peak last month.

Rodolfo Trampe, head of the national coffee association Amecafe, told Reuters in an interview on Monday exports from the world's fourth-largest arabica producer have fallen about a quarter so far this season compared to last year.

"There are some problems in the supply chain," Trampe said. "We might have slightly less coffee (in 2010/11) and -- because of the high coffee prices -- producers definitely still have coffee that they haven't let go of yet," said Trampe, who is angling to head the International Coffee Organization.

Mexico could end up producing just 4 million 60-kg bags of coffee this harvest compared to 4.6 million bags in 2009/10 as unseasonable rains and serious frosts hit the crops, he said. However, Amecafe still does not have an exact estimate.

Mexico's harvest begins later than in Brazil so by the time Mexican producers began selling their goods, prices had started a sharp rally from last summer, prompting some to hold back on sales in the hope the boom would persist.

Brazilians started picking around June, while Mexico's harvest starts in October, said Christian Wolthers of green coffee buyers Wolthers America in Florida.

"While the Brazilians sold their coffee quite constantly during the period of rising prices ... Mexican and Central American producers hadn't sold yet and were looking at these prices and deciding to sell hand to mouth," Wolthers said.

That decision to hang onto coffee is helping to keep prices within a tight range below the 34-year high of $2.9665 per lb hit on March 9, around double the levels seen in June 2010.

"Voluntary retention of inventory at origin on an already tight market is not helping to reduce prices," Wolthers said. "It promises higher prices for the near future."

GROWING TASTE FOR COFFEE

Rising coffee prices are passed on to consumers as roasters and coffee shop chains faced with higher costs consider raising the price tags of lattes and cappuccinos.

Mexico ranks lower on the scale of global exporters, shipping just 2.56 million 60-kg bags abroad last season, because the country consumes around 40 percent of its production. Most is used by the large soluble-coffee industry.

Swiss food giant Nestle NESN.VX is building the world's largest instant-coffee factory in Mexico, and the country is importing between 800,000 bags and 900,000 bags of mostly robusta coffee to cover the industry's needs, Trampe said.

There are no official figures on domestic consumption, though Trampe said it is around 1.8 million 60-kg bags annually and growing as Mexicans sip more coffee. U.S. coffee firm Starbucks (SBUX.O) recently opened its 300th store in Mexico.

Mexico's Central American neighbors export virtually all of their high-quality arabica coffee and have small internal markets by comparison, according to Amecafe.

Guatemala said last month its local market had come to a standstill as traders refused to pay soaring premiums for top-notch beans and Trampe says Mexico has seen similar problems, which could also be contributing the to export fall.